Managing Your Finances: Pitfalls to Best Practices

Agenda

• The Basics – Budgeting & Banking

• Investments – Thinking Longer Term

• Q&A

The Basics – Budget & Expenses• Common Pitfalls

– Unexpected expenses– Collection challenges– Earning little to no interest on substantial balances– One individual in complete control of the funds

• Best Practices– Have a designated Treasurer– Obtain costs early for defined expenses– Transparency – share budget with organizations, teams and/or parents;

ongoing reporting on finances– Consider online payment systems or Zelle, Venmo etc. for ease of collections

(ensure payer absorbs fees)– Clearly define payment deadlines and penalties– Meet with an investment advisor to talk through all your options

The Basics – Banking• Bank Account

– Two non-related signers, Treasurer/President etc.– Minimum deposit to open; open under nonprofit business registration; fees should be minimal– Tax ID number for the team– ID and SSN for signers– “Meeting Minutes” authorizing designated signers– Look into savings account to start building up reserves– Stay on top of updating who the authorized individuals are after people step into new roles

• Features– Online access (paperless statements) may reduce fees– Organizations may have sub accounts for individual teams– 24/7 online support– Online ability to run financial reports– Real time transparency or charges on the account– Tax documents sent to the right individuals directly

Investments

• Common Pitfalls– Policy not clearly defined or matched to goals and spending… or

nonexistent!– Adherence to policy and process – investing discipline and oversight– Too much in cash for long-term goals– Too much in risk assets for short-to-intermediate goals– Not enough recognition given to fee or performance issues– Investments not well diversified– Investments that are low quality, speculative, or illiquid– Reactions in volatile markets – psychology and decisions in the

investing cycle

Investments• Investment Policy Committee

– Minimum three members– Some investment experience preferred; disinterested party– Responsible for oversight of the investments as they pertain to the Investment

Policy Statement

• Investment Policy Statements– Organizational document designed to address objectives, constraints, and

procedures that govern investment activities of the organization– Defines Purpose and Scope, definition of duties, and objectives– Language may be flexible to permit changing circumstances

i.e. “the organization must maintain one year’s anticipated expenses in cash”

– Defines asset allocation targets, approved ranges, liquidity, and permitted and non-permitted investments

– Outlines a spending policy and any unique circumstances, as well as provisions for monitoring and review

Investments

• Investment Manager– In order to achieve an independent perspective and help mitigate risks

associated with investments, the organization may choose to hire an independent investment manager. A good investment manager should:

• Operate under a true fiduciary standard

• Maintain compliance to the Investment Policy Statement

Includes objectivity, expected relative performance, and allocation/selection of investments

• Communicate frequently to the committee/board adherence, performance, fees and any issues

Investments• Asset Allocation & Time Frames

– Asset allocation is defined as the mix between growth and stable assets– Generally, growth assets i.e. stocks should represent timeframes longer than

five years– Some stocks are ok for shorter timeframes as a hedge against inflation (no

more than 20%)

Examples:– For a three year return on a rolling monthly basis dating back to 1950, a 30%

allocation to bonds and 70% allocation to stocks has averaged 7.4% annually and the worst return averaged 0.1%.

– For a one year return, a 10% stock/90% bond portfolio averaged 6.4% with the worst return -2.3%

Source: Crandall Pierce, as of 9/30/19

Investments

• Other Investment Considerations

– Diversification

– Liquidity

– Fees

– Quality

Investments• Types of Investments

– Cash – Short Term Goals , Best Principal Protection• Deposits, CD’s, Money Markets

– Bonds/Fixed Income – Intermediate Term Goals, Capital Preservation, Income• Government, Corporate, Mortgage, International, Municipal, Specialty

– Equities/Stocks – Long Term Goals, Growth, Some Income• US Large Cap (companies), Mid Cap, Small Cap, International (Developed & Emerging)

– Alternatives – Lower Volatility and Low Correlations• Real Assets, Commodities, Real Estate, Hedge Funds & Derivatives

– Vehicles for Investing• Individual Securities• Mutual Funds• Exchange-traded Funds

Q & A